Hudson Ltd. (HUD) Tops Q1 EPS by 6c

Hudson Ltd. (NYSE: HUD) reported Q1 EPS of ($0.28), $0.06 better than the analyst estimate of ($0.34).

First Quarter 2020 Financial Statement Impacts Related to COVID-19

The effects of COVID-19 resulted in the following significant financial statement impacts during the first quarter:

• Recorded $3.3 million of rent waivers for March as a result of rent payment waivers received from numerous landlords. As discussions continue with landlords, rent relief waivers are expected to increase significantly in the second quarter due to the timing of waivers that have been granted.
• Recorded $4.7 million of additional inventory allowance for slow-moving and obsolete items.
• Recorded a goodwill impairment of $52.3 million.

First Quarter 2020 Review (all metrics compared to the 2019 first quarter, unless otherwise noted)

Income Statement

• Turnover decreased by 23.3% to $341.5 million, due to the impact of COVID-19 and the resulting reduction in travel.
  • Net sales declined by 23.4% to $332.8 million.
  • Organic net sales, which is a combination of like-for-like net sales and net new business and expansions, declined by 24.2% to $329.5 million.
  • Like-for-like sales decreased by 22.5% (22.4% in constant currency) to $307.4 million.
• Gross profit decreased by $70.5 million or 24.8% to $213.3 million, reflecting the reduction in sales and an additional inventory allowance of $4.7 million due to the extended period of store closures. Gross margin was 62.5% compared to 63.8% in the prior year period, reflecting 140 basis points of adverse impact from the increased inventory allowance.
• Lease expenses decreased by $14.2 million or 51.3% to $13.5 million, reflecting lower variable rent based on the decline in sales, and rent waivers of $3.3 million received from numerous airports and commuter terminals associated with waived rent payments that were primarily due for March 2020. As discussions continue with landlords, rent waivers are expected to increase significantly in the second quarter due to the timing of waivers that have been granted. As a percentage of turnover, lease expenses were 4.0%, compared to 6.2% in the prior year.
• Personnel expenses decreased by $18.3 million or 15.9% to $96.7 million. The decrease was primarily due to $7.6 million of executive separation expenses recorded in the prior year first quarter, as well as the personnel expense management actions taken toward the end of the current year first quarter in response to the COVID-19 pandemic. As a percentage of turnover, personnel expenses increased to 28.3% from 25.8%, due to the lower sales levels that quickly materialized late in the first quarter.
• Other expenses decreased by $2.8 million or 7.0% to $37.3 million, primarily related to a reduction in variable selling expenses due to the sales decline. As a percentage of turnover, other expenses were 10.9%, compared to 9.0% in the prior year period.
• Other income, which had previously been included in Other Expenses, decreased by $0.2 million to $2.5 million. This line item consists of sales related income, franchise and management fee income, and other operational income.
• Adjusted EBITDA decreased by $43.1 million to $(5.4) million.
• Depreciation, amortization and impairment increased by $56.0 million to $144.6 million. The increase was primarily due to a non-cash charge of $52.3 million related to goodwill impairment, reflecting a reduction in forecasted cash flow due to the impact of COVID-19.
• Operating profit (loss) was a loss of $76.3 million compared to a profit of $15.1 million.
• Reported net loss to equity holders of the parent increased by $71.4 million to a loss of $77.2 million, and reported diluted earnings per share increased to a loss per share of $0.84 compared to a loss per share of $0.06.
• Adjusted net loss attributable to equity holders of the parent was $25.8 million compared to a profit of $8.7 million in the prior year, while adjusted diluted loss per share was $0.28 compared to a profit per share of $0.09 in the prior year quarter.

“The COVID-19 pandemic has had an unprecedented impact on world travel, and our thoughts go out to our team members, customers, partners, vendors and landlords that have been impacted around the globe. As the severity of the pandemic became evident, we immediately responded with actions that put the health and safety of our teams at the forefront and preserved our financial position. We armed our frontline team members with personal protection equipment (“PPE”), developed enhanced store cleaning protocols, expanded ‘Tap to Pay’ capabilities, installed Plexiglas shields, and implemented standardized social distancing decals and guidelines. Additionally, we made the difficult decisions to adjust our store operations and temporarily reduce our workforce, while implementing significant cost reductions across the organization,” stated Roger Fordyce, CEO of Hudson.

Mr. Fordyce continued, “I’m incredibly proud and grateful for how our team members have stepped up to address this unprecedented business and personal challenge, and for our business partners who have continued to work jointly with us to seek rent relief in our local communities. Above all, we extend our heartfelt appreciation to our frontline team members who have continued to serve those still traveling throughout the pandemic, including essential workers such as healthcare professionals and airport and commuter hub personnel.”

“Today, thanks to the hard work and unwavering commitment of our team, and through partnership with our landlords, we have slowly begun the rebuilding process of reopening stores as passenger volume increases. In doing so, we have taken extraordinary steps to ensure our stores are supplied with ample PPE and that enhanced health and safety measures are in place as we begin to warmly welcome back our team members and customers,” said Mr. Fordyce. “While we are pleased to see that passenger volume is gradually increasing from the record low levels experienced in April, we are still witnessing passenger volumes through the second week of June that are approximately 85% below last year, and business conditions remain extremely challenging. Our ongoing actions to reduce expenses and manage cash flow are critical in navigating this crisis and positioning Hudson for a full recovery and successful long-term growth.”

Mr. Fordyce continued, “While our business recovery is paramount, our strategy remains intact as we serve as the all-encompassing travel partner and continue to grow our four key pillars: travel convenience, specialty retail, duty free, and food and beverage. To adapt to new traveler expectations, we are further evolving our digital footprint with contactless shopping environments, and providing 24x7 access to health and safety supplies through the roll out of PPE vending machines. We have also signed an agreement with Luxottica to introduce Sunglass Hut shop-in-shops in our travel convenience stores.”

Mr. Fordyce concluded, “While the effects of this global health crisis are unprecedented, the Company and our management team have overcome significant business downturns in the past. Thanks to the ongoing support of our team members, customers, business partners and landlords, we are in the early stages of our road to recovery and remain confident in the long-term strength of our business model and the resiliency of the travel retail industry.”

For earnings history and earnings-related data on Hudson Ltd. (HUD) click here.

You May Also Be Interested In

• Tesla plans 'flying' Roadster stunt at SpaceX Texas site as early as August
• Star Equity Holdings (STRR) Misses Q2 EPS by 8c
• SVB & T Corporation (SVBT) Tops Q2 EPS by 275c